Why Are Small Businesses So Important for the Economy?

04/18/2017 10:17 am ET

Economists theorize that small businesses and startups are some of the most important influencers for economic growth, but why?

Big businesses may dominate the stock market, but it's small businesses and startups that keep our economy moving. Small businesses create job opportunities and drive economic growth in smaller geographic areas, but how could they possibly compete with their bigger counterparts in terms of economic potential?

Competition

First, small businesses inject new competition into previously stale areas. A local farmer, for example, may be able to offer cheaper produce because he doesn't have to spend money on shipping. An agile startup may be able to innovate new technology faster than a bulky, bureaucratic counterpart, forcing changes in thinking and behavior.

Local Hiring

Small businesses also operate locally, which gives them a strong preference for hiring local people. Big corporations often move into new territory with a team already in place, which can improve a city's population, but nothing drives new job growth in a region like more powerful small businesses.

Diversity

Small businesses also have more flexibility, and can be started by almost anyone. That makes them more diverse in form, function, culture, and potential than large corporations. The greater diversity we have in the economy, the easier it is for the economy to withstand tough conditions.

Turnover

Even though it sounds like a bad thing, many startups and small businesses eventually fail. That turnover gives the community a chance to learn, recover, and rebuild, which is beneficial in the long run, driving even more new growth.

Small businesses and startups are what keep our economy strong, and I'm proud to have contributed, in one way or another, to dozens of startups in my time as an entrepreneur. If you've ever considered starting a business, know that there is no "perfect" time; you have to take the plunge at some point. Entrepreneurs like you are what keep the market alive.